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If_you want to see_if the sweep happened watch_this URL for yesterday's Daily Treasury Statement.
https://fsapps.fiscal.treasury.gov/dts/files/19093000.pdf
Sometime this evening they should post a document there. Look for a deposit attributed to "GSE".
If it's there - you know. If it's not there - you know.
The market has a way of setting prices accurately, regardless of what the conspiracy theorists say about the MMs affecting the price.
The news is still settling in - in a week or so I think we will know the real trading range.
My next buy for fannie is at $3.38 but after that I'm not buying more until it drops another 25% for now.
Everyone is overthinking the price action.
Price is down because people thought that FHFA and Treasury would let Fannie and Freddie increase their net worth. On Monday we found out that no - they will not be able to increase net worth. They can only increase capital. Their debt in the form of Senior Preferred Liquidation Preference will increase to match the increase in capital - resulting in a continuation of their zero net worth in perpetuity.
The 5th Court decision has the potential to increase stock price by crediting them for payments already made, but until this goes through the Supreme Court, then back to the lower court - it won't affect stock price.
The lower court may do anything from completely unwinding the bailout to crediting all payments towards paying off the seniors to just going back to them paying 10% on their current $200B balance due.
Until that is made clear the stock will float around - I suspect between $2 and $4. Hopefully we get these court decisions by next summer so we can see where this stock might go. After that I'd expect the common shares to be somewhere between $1 and $150. It all depends on the judges.
Maybe we can put together a go fund me account to buy a bunch of F&F shares and give them as a gift to those judges to encourage them to do the right thing?
As for why that table_2 has not been updated... I think FHFA is working on a new chart that includes liquidation preference so they can track how much it goes up each quarter. Maybe they will merge table_1 and table_2? They don't want to waste time updating that old table_2.
Not sure why anyone is confused.
Here is what the letter says:
II. Increase in Liquidation Preference
The Enterprise and Treasury agree that, in addition' to any adjustments required by Sections 2(b) and 8(b)(iii) of the Certificate, on September 30, 2019, and at the end of each fiscal quarter thereafter, the Liquidation Preference shall be increased by an amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter, until such time as the Liquidation Preference shall have been increased by $22,000,000,000 pursuant to this sentence.
Where it is bolded you see the liquidation preference will slowly increase - a little each quarter - by the amount of earnings Fannie retains.
Liquidation Preference will only increase when the companies make a profit and don't send that profit to Treasury. For example, yesterday's non-payment increased the LP by $3.365B for fannie, by $1.826B for freddie.
LP will go up slowly over the next year or two until it reaches the full $45B for the two combined. Only a little real so far, much more potentially.
Well - it could, but most likely much before then something big will happen eliminating the senior preferred entirely.
For those in the US not familiar with Australian web sites - I think the web site you mention below is www.sharecafe.com.au
Wow - lively and very active discussions there about Clinuvel.
First time I ever saw FHFA not update that document by 6pm or so. Strange. It makes it seem like that sweep happened.
Did you read what you posted?
It says that if at any point after Jan 1, 2018 fannie or Freddie do not pay a dividend that is due on time and IN FULL, the whole deal is off and ALL of the net worth of the company will be swept and their net worth will revert to ZERO.
This is a threat - saying that if they don't pay in full on time, we go back to the original plan which said the company can not retain any capital at all. Thus the ZERO it mentions.
Kinda the opposite of ending the NWS - it would essentially bankrupt the company. Treasury gets back all the money previously not swept, and they still owe the increased liquidation preference.
Hopefully they never slip up and miss a payment once the $25B cap is reached.
NEWS-FLASH F&F net_worth INCREASES by $3Billion each!!!!!
In today's letter they ADDED a section saying the liquidation preference would be increased by the amount they are allowed to retain MINUS $3 billion. They did not add in the $3B already allowed. But they REMOVED the $3B increase previously added by the 2017 letter.
So this officially raises their net worth by $3B each.
A typo? Mistake? Gift? Who knows - they were in a bit of a rush to get this letter out today.
In any case - this WILL add $3 to the stock prices once people realize this. Sweet.
For example here is what it says for Fannie:
II. Increase in Liquidation Preference
The Enterprise and Treasury agree that, in addition' to any adjustments required by Sections 2(b)
and 8(b)(iii) of the Certificate, on September 30, 2019, and at the end of each fiscal quarter
thereafter, the Liquidation Preference shall be increased by an amount equal to the increase in
the Net Worth Amount, if any, during the immediately prior fiscal quarter, until such time as the
Liquidation Preference shall have been increased by $22,000,000,000 pursuant to this sentence.
Note that they REMOVED the previous $3B increase.
It's a loan because just like before the NWS, the amount not paid to Treasury is added to their debt. See below from today's letter:
The Enterprise and Treasury agree that, in addition' to any adjustments required by Sections 2(b) and 8(b)(iii) of the Certificate, on September 30, 2019, and at the end of each fiscal quarter thereafter, the Liquidation Preference shall be increased by an amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter, until such time as the Liquidation Preference shall have been increased by $22,000,000,000 pursuant to this sentence.
III
The amount described above is their quarterly profit.
We all know this is unimportant since the NWS was already ruled illegal and this new sweep plus quarterly draw is even more illegal - so at some point Calabria and Mnuchin will be in jail for going against the courts and all overpayments including these will be returned and the senior preferred will be considered paid... but as I said that may be many years away so the market isn't pricing it in yet.
Key_word is allowed_to_hold $45B of capital
This has zero effect on net worth which remains at zero. It just lets them hold capital so that mortgage investors will more likely be paid if things go bad. The net worth of the companies remains at zero when you count all assets and all preferred stocks.
The market has correctly priced in the value of this change - which is $0.00 to common shareholders. It's not clear if this may help junior preferred or not. It adds to the risk to the government.
We have gone full circle.
The NWS was created supposedly because fannie and Freddie couldn't afford the 10% interest and each quarter they were borrowing from Treasury to pay their dividends.
Now - each quarter treasury will loan them the money to pay the quarterly dividend, but they get to keep the cash in their account.
So - we are doing exactly what the NWS was supposed to prevent. F&F are borrowing more money every quarter to pay the dividends to treasury.
If the NWS was ever legal - this is oh so much more illegal - I think this one will result in treble damages and possibly jail time for the heads of FHFA and Treasury.
But - another 5 years in the courts.... ugh.
Good news Mnuchin cleared his Monday schedule so he can be with Calabria to announce the temporary suspension of the NWS.
Many times former shareholders are awarded damages. I specialize in "troubled" stocks and dozens of times - years after I've sold a stock - I get a letter saying there was a judgement in favor of shareholders. I have to supply records showing the purchase dates and sell dates for shares I held during the time the damages occurred.
In the case of Fannie and Freddie damages occur every time another sweep is taken, so technically a successful shareholder class action suit would award everyone who owned shares between the beginning of the sweep and the end of the sweep if you held them on the date a quarterly sweep was ordered and taken. It would be a paperwork nightmare, but would be fair.
Usually these windfalls from class action suits give me just a few pennies a share and sometimes it's not worth the hassle of filing for $20. But sometimes it brings in half the value of the stock.
So - yes a class action shareholder suit could reward former share owners, but so far I know of no such suit being filed. Maybe if the NWS is officially ruled illegal we might start one.
I think Schrödinger's cat would be more like it.
The end of the NWS has simultaneously happened already and not happened yet until we either get a letter or the sweep is recorded by treasury.
Didn't miss it escrows fully paid.
That quote includes WARRANTS as outstanding shares. It says:
Shares Outstanding 5.76B
Most quote sources don't count the warrants, but some do. It would be more correct to include the warrants as it shows a more correct market cap. If the warrants went away the stock would instantly go up 5X and the market cap would be the same if you had been including the warrants.
Increase in Liquidation Preference - adding the amount not swept to the amount Fannie and Freddie must pay back. It's basically the amount owed.
I expect a letter very similar to this one issued in December 2017 to allow them to each retain $3 Billion. See the last paragraph:
https://www.fhfa.gov/Media/PublicAffairs/Documents/GSEletteragreementfnm12-21-2017.pdf
TREXIT vote was by 5th_Circuit Court_of_Appeals. Already voted on. (in effect)
TREXIT will go something like that.
I think the Unquadnilium bluff worked twice for Kirk.
It's clear Calabra and Treasury are playing hard ball - asking for more shares in exchange for not stealing $20B. Obviously if the NWS is unwound, Treasury owes F&F - so if they set a precedent for exchanging shares for cash, Treasury may have to give back some of the warrants along with crediting F&F.
It will be interesting to see how many shares they think $20B is worth. I'd say we use that same ratio to decide how many warrants they need to cancel for overpayments.
F&F might buy back their warrants, but only if they find themselves overcapitalized after getting credit for all the overpayments to Treasury.
The difference with F&F warrants is they were priced below a penny a share. As far as I know all of the other warrants were priced somewhere between the stock price at the time they were issued and the stock price before things went bad. Figure about half the price they would be when warrants are exercised.
Unlike other warrants - F&F get very little money when Treasury exercises them - so that does not help them recapitalize. If they buy them back - they are paying full price for common shares which would drain capital.
Treasury sometimes discounted the warrants when selling them back to the companies - but there was usually a reason - like repaying overpayments. (hint)
BoA warrants were exercised. Selling them back to BoA is selling them which means Treasury received money for them. This is exercising them. The companies that bought them back didn't need the cash from selling them to Treasury. Technically Fannie and Freddie don't need capital either since they already paid it out, but they can't buy them back since they have to pay full market value for those shares.
.
Whether Treasury exercises them and sells them on the open market - or exercises them and sells them back to the companies - in all cases they were "exercised". Oh - except they didn't exercise them when the companies went through liquidation...
I just hope people keep realistic expectations. The market has already priced in the warrants being exercised - so really that will have no impact.
You nailed it. Unlike every other warrant in the history of Treasury warrants, these give virtually zero cash to the company when exercised. In the case of other warrants the strike price was set at a reasonable value so that when exercised they gave Treasury a nice profit and helped to recapitalize the company.
These warrants were designed to NOT recapitalize the companies. I'm not sure if anyone ever explained the thought behind this other than hoping to prevent them from ever recapitalizing. However F&F turned out to be so profitable that even this attempt to keep them down didn't work.
This might be a way to go in challenging the warrants in court. However nobody has talked about this other than people on this board.
Treasury DID buy the Seniors and Warrants. When it says "shall purchase" that happened in 2008. Treasury gave money, and got senior shares and warrants. Done deal.
However - they have not exercised the warrants they currently own yet - they need to exercise them by 2028 or they expire worthless.
I'm wondering how many more warrants they are getting in exchange for not stealing $20B? (is that $20b total for both - so just $7B additional each?)
So they already own 80%. If they take say another 10% then they will own 90% of the common shares. Sweet deal.
Link to Fifth District Court of Appeals Sept 6 decision for your perusal:
http://www.ca5.uscourts.gov/opinions/pub/17/17-20364-CV2.pdf
FHFA table_2 says Q3 sweep is 9/30/2019. But it's the payment based on profits in Q2. I think it's possible there is some confusion about what they mean when they say they want to end the sweep by Q3.
Two possible meanings are:
Don't sweep the Q3 profits (at end of December)
Don't take the Q2 sweep during Q3 (by 9/30/2019)
Maybe some other ways to read this too.
It's only a 3 month difference, so not a big deal. And when the lower court reverses the NWS as ordered by the Fifth court we will get it all back anyway. But it will affect the stock price in the short term by 50 to 80%... trading opportunity!
REKCUSDO missed your return due to high volume of posts recently!
I have been looking for you so you could weigh in on the legal aspects of the recent Fifth decision. Have you read it over? Any opinions different than or supporting other people's interpretation?
Oh so, so many questions for you. I'll just start with - have you read it and what are your first impressions?
I have terminated my "buy/sell some every 25 cents down/up" rule for now... so pretty much 100% still in.
DTA = Deferred Tax Asset. Note the word "asset". So they count towards their net worth. Bonus - if tax rates go UP under the democrats, the value of the DTA's will go UP!!!
A DTA is not a tax credit. It's losses you can count against future gains, not dollar credits to be used to "pay" future taxes... minor difference.
Another option might be to take the amount to refund - divide by the stock price - and give them that many warrants for free. No cash... F&F can sell those shares to raise cash.
I think for political reasons it would be bad form for Treasury to hand billions of dollars in cash to Fannie and Freddie. Might remind people of the pallets of money shipped over to Iran... fannie and freddie are about as popular as Iran with the American public and politicians.
So if Treasury refunds any of the sweep to F&F they will give it first by writing off the liquidation preference on the senior preferred, then by giving credits against future taxes. More DTA's. That way no cash changes hands.
And as we know from 2018 - DTA's do count as capital/net worth. Of course they will need to multiply the amount refunded based on the tax rate to come up with the exact DTA amount to credit them.
But that is step two after they are FORCED to give back the overpayment. In the short term they will most likely replace the sweep with a 10% fee. They will use the full nearly $200B amount to charge interest against, meaning F&F will still need to pay around $5B on 12/30/2019. They were scheduled to pay between them $5.191B, so hmm... they won't retain much.
But fear not - Treasury will have to give it back eventually.
Calabria referred to the December 2017 letter increasing the amount the GSE's could retain to $3B each. He said they would do the same thing this month.
Aren't commons trading now? Why would Calabria say that under most scenarios the commons will trade again?? These guys discuss stuff in private and when speaking in public things slip. Is he saying that part of the plan is to suspend trading in fannie and freddie common shares? That would imply a very major restructuring - essentially a liquidation with new common shares being issued. Hopefully current shareholders will get reasonable value in the new shares... ??? If they screw shareholders good luck with that IPO...
Mnuchin made a similar slip when he said Treasury would get paid for "the delay". What delay? WTF are they discussing in private...
Yeah - the letter increasing the amount that f&f can retain would only bring them to $50B or so after 2 years, so around then they need something to bring in more cash.
Great encouraging interview of Calabria!
Key takeaways:
No more net worth sweeps for at least 2 years.
No sweep end of September.
After two years of retained earnings they will consider a stock IPO if more cash is still needed.
They will add the un-swept funds to the senior's liquidation preference like they did in 2017.
What he didn't say was that since the net worth sweep is illegal he can't increase the liquidation preference to make up for the not-swept funds. That will end up getting reversed along with the rest of the current liquidation preference, so it does not matter anyway. He is just saying this to sound like they have a chance at an appeal.
The market won't give the stock any upside until that letter is published in a week or two.
Many think the warrants were some sort of "collateral" to make sure Treasury got paid back for the senior preferred liquidation preference.
It's the opposite. Think about it - why would Treasury not get paid back? Only reason would be that F&F went bankrupt, were liquidated and not enough cash was there to pay the liquidation preference. In that case the common stock would be completely worthless as would the warrants.
Instead, the warrants are there to be sure that Treasury enjoys some of the profits of their labor to rebuild fannie and freddie. Once f&f have paid back the seniors, instead of Treasury walking away with nothing but their initial investment plus a measly 10% interest - they walk away with 80% of the value they created in f&f.
As it turned out Treasury went the other way and tried to force f&f into liquidation, but now that plan has completely fallen apart and they have no choice but to reap their undeserved profits as F&F go back to a normal valuation.
I hear people think the warrants will bring Treasury around $100-150B when exercised. Since that's 80% that means the publicly held commons will ultimately be worth about $25-40 billion, or $12-20 per common share. Nice.
You misread comment about $39. I'll add what I'm pretty sure he meant:
Add the $14 to the $25 par value (of junior preferred), one comes up with a possible payment of $39 to the shareholders (of junior preferred) in common stock (instead of cash).
Two things here:
1. They don't burn cash, they issue more common stock to pay off the old juniors.
2. Juniors will probably get something a little above par as a reward.
Juniors need a special reward, because they won't benefit from the gains the common shareholders will see when billions are credited back to F&F.
Last time buffer was increased simply by a letter from Treasury. You can see that letter here:
GSE Agreement Letter
If Treasury has a copy of a PDF editor they simply need to change the date and change the $3 to $30 billion. Just add a zero. I think this could be done in the next two weeks. I could do it in two minutes.
Now... bigger question is will they also increase the liquidation preference by $30 billion too? Last time they did, but with the recent court decision, maybe not? Maybe instead lower or eliminate the liquidation preference as part of a settlement for the NWS being illegal.
Did one of the mods clear out all the cr@p at the top of the board's main page or is my browser broke? (Ironic if my browser is broke the day I get rich)
Thanks if you did! I was getting tired of scrolling through all that old, obsolete junk.
When I was a moderator I cleaned it up a bit, but didn't get to finish the job...
Maybe we can put some new, upbeat stuff there describing how this will be going UP instead of all that old depressing stuff about when it went down.
Why a reverse split? Many good stocks trade below $10 these days. If I recall - anything above $4 is fully marginable and can be listed on any board.
Eliminating the warrants WOULD be a 1 for 5 reverse split... (corrected)